Death toll rises to 250, officials say, as interior minister offers to resign after massive car bombing in Karada.

A massive suicide bombing in central Baghdad has now become the deadliest attack in Iraq since the 2003 US-led invasion, with the death toll reaching 250, according to the health ministry.

The Islamic State of Iraq and the Levant (ISIL, also known as ISIS) claimed responsibility for the devastating blast, which went off early on Sunday in Karada, a predominantly Shia neighbourhood.

A lorry packed with explosives blew up on a crowded shopping street, which was packed with families out socialising after they had broken their fast during the Muslim holy month of Ramadan. Many of those killed were women and children.

The announcement by the health ministry on Tuesday came as interior minister Mohammed al-Ghabban offered to resign, saying authorities "had failed in having the different array of security forces work under a unified plan in Baghdad".

Ghabban called on the government to hand over responsibility for the security of the country's cities to the interior ministry and described the hundreds of checkpoints dotted around the capital as "absolutely useless".

He said the explosives-rigged lorry came from Diyala province north of Baghdad, meaning it most likely successfully navigated multiple security checkpoints on the way into the Iraqi capital.

Responsibility for security in Baghdad is divided between the army, federal and local police. The interior ministry is in charge of the police.

Ghabban handed authority to his deputy, until Prime Minister Haider al-Abadi makes a decision on who will replace him. Abadi's office made no immediate comment.

Many Iraqis blame their political leadership for lapses in security in Baghdad that have allowed large amounts of explosives to be transported past checkpoints and into neighbourhoods packed with civilians.

A group of protesters marched on Sunday from Karada to Abadi's home to show their anger over what they described as repeated security failings.